Part II, Chapter IV
The duties on sugar as they stood for the half-century after the close of the civil war illustrate several questions of principle. They present a clear case of the continuance of imports in face of duties; and yet a case which, as regards the imports of the later years of the period, needs to be interpreted with caution. During these later years, moreover, the imports came chiefly from regions with which the United States had special trade relations; either because of political control, as with Hawaii, Porto Rico, and the Philippines, or because of reciprocity treaties, as with Cuba. The relaxations of duty for the regions thus favored caused this schedule of the tariff to stand by itself. The domestic production of sugar, and especially of beet sugar, increased fast, under conditions which can be understood only in the light of the doctrine of comparative advantage. The refining of sugar, again, came to be during the half-century a great-scale industry, and was dominated by one of the earliest of the trusts. This was a conspicuous case in which the protective system might be charged with having nurtured or at least strengthened a monopoly. Lastly, the revenue from sugar was large; its fiscal yield throughout was important for the federal budget. Varied questions hence present themselves, ramifying into phases of economic inquiry that seem at first sight to stand in no connection with the sugar duties.
The duty on sugar during the greater part of the period was not far from two cents a pound. Under the tariff acts of 1870 and 1883, it was a little more than two cents (2.25 under the act of 1883). Under the tariff of 1890, the so-called McKinley bill, sugar was admitted free. But a bounty was then given on sugar of domestic production, at the rate of two cents a pound; so that protection was retained at this rate. In the tariff act of 1894, the "Wilson bill," a new system was adopted, bringing a lowered rate. The duty was made ad valorem instead of specific; the rate was made forty per cent, which, at the low prices of that period, was equivalent to little more than one cent a pound. Shortly after, however, the act of 1897 (Dingley) restored the duty very nearly to the level which had prevailed before 1890; it was fixed, on the grades chiefly imported, at about 1 2/3 cents per pound. In the act of 1909 (Payne-Aldrich) this figure was not changed.
The tariff act of 1913, however, made an incisive change, sure to have far-reaching consequences. The duty was reduced at once (i.e., by March 1, 1914) to a rate 1 of one and one-quarter cents a pound. More important, sugar was to be admitted free of duty after March 1, 1916. The interval of two years before the final removal of the duty was designed to give the protected sugar industry (or rather industries) a sufficient period for adjustment to the coming change.
The duties above stated were on raw sugar. On refined sugar there were additional duties, so-called "differentials," designed to give protection to the refiners. The effects of the two sets of charges—on raw and on refined—are quite distinct, though often confounded in popular discussion. For the present, attention will be confined to the duties on raw sugar, by far the most important in quantitative effect and presenting also the problems of most interest to the economist.
Until about the year 1880, the effects of the sugar duty were of the simplest sort. The imports were large, the domestic production comparatively small. The imported supply was from eighty to ninety per cent of the total. Hence the duty in the main was not protective. It was chiefly a revenue duty: by far the greater part of what the consumers paid in the way of enhanced price, or tax, went as revenue to the federal Treasury.
The domestic production was confined to Louisiana. There it had suffered during the civil war, and at the period with which we begin was less important, both absolutely and in proportion to the imports, than it had been before 1860. During the decade 1870-80 the Louisiana output, fluctuating with the seasons, ranged from 100 to 200 million pounds a year. The imports ranged from 1000 to 2000 million pounds. Not only was the Louisiana supply thus small in comparison with the total, but it was produced under conditions not dissimilar from those in the competing foreign countries. The question of the effects of protection was presented without complexity. The Louisiana sugar, like that imported, was made from cane, and by substantially the same methods and with labor of very much the same character. The climate, however, is less favorable for sugar cane in Louisiana than in Cuba, Java, and the other regions whence cane sugar is imported. The duty was "needed" for protection, because the Louisiana sugar was produced under physical conditions less favorable. The effect of the duty, considered from any but the mercantilist point of view, was obviously disadvantageous. But the national loss, assessed according to the orthodox reasoning, was not quantitatively considerable, since the supply came preponderantly by importation.
The later course of development in Louisiana brought some considerable changes. The Louisiana supply increased very much beyond what it was in 1870-80; yet it remained about the same proportion of the total,—not far from 10 per cent of the country's consumption. The increase was irregular, fluctuating with the Louisiana crops, which are peculiarly subject to variation from year to year because of the possibility of frost,—the serious natural drawback in this region. After 1890 there was a substantial gain, no doubt due in part to the effect on men's imagination of the bounty given by the McKinley tariff act. It is true that the bounty was intended to do no more, and in fact did no more, than make up for the abolition of the duty. But a bounty seems to make a greater impression than a duty,—not only on the general public, but also, strange as it may seem, on the producers whose affairs are directly concerned.
Possibly there was in some degree a really greater benefit to the Louisiana sugar planters from the bounty than there had been from the previous duty; since some small fraction of the latter had probably been intercepted by the refiners. At all events the Louisiana sugar output grew very rapidly during the bounty period (1891-95), and reached, toward its close, dimensions which at no later date were much exceeded.
After the bounty episode there were important changes in the internal organization of the industry in Louisiana. Sugar prices the world over were low during the closing years of the nineteenth century and the opening years of the twentieth, chiefly because of the pressure on the market of the bounty-fed sugar from Continental Europe. The Louisiana industry necessarily felt the pressure, and thereby was forced, as is so often the case when profits are threatened by adverse conditions, to put its best foot foremost. Plantation methods and sugar-house methods were improved. Many plantations passed out of the hands of the old easy-going families, and were managed more efficiently by new men. The previous system of having a sugar-mill on every plantation was superseded by one of independent central sugar-mills, each grinding the cane and extracting the sugar for a dozen plantations, and each equipped with expensive and well-planned machinery. A necessary part of the new method was a network of light railways for carrying the cane to the grinding centers. The transition to this more capitalistic system, it may be noted, was not peculiar to Louisiana, nor first undertaken there. It took place in the other cane-sugar regions also, at about the same time and because of the same pressure from low prices of sugar. At all events, with the improvements, sugar making in Louisiana held its own, and even showed some increase, during the years 1900-10. How far its maintenance was dependent on the import duty,—whether the duty gave a net bonus to the producers, or simply enabled them to hold their own notwithstanding adverse climatic conditions,—is not easy to make out. Some good observers stated that the planting part of the industry was profitable, and would have been carried on even under a duty much lower. Others stated that there was no unusual profit, and that a reduction in duty would spell ruin. This latter, needless to say, was the opinion put forward, and doubtless held honestly, by the planters and sugar-mill proprietors, and led to vehement opposition on their part to the changes of duty in the tariff act of 1913.
At the present date (1915) it remains to be seen whether it will prove true, as was emphatically urged by the representatives of the Louisiana planters, that their industry will disappear under free sugar. Whatever the outcome, its history can hardly offer any peculiar economic problems. The case is a simple one of the dependence of a domestic industry on tariff support. More complex are the other consequences of the sugar duty, to which attention will be given in the chapters to follow.